Seniors sue medicare to close nursing home coverage gap

Susan Jaffe

Published 12:00 am, Friday, May 3, 2013

Roberta Baxter, a 78-year-old retired instructional assistant for the Killingly school system, dislocated her kneecap after a fall in her bathroom last September. Following treatment at a local hospital, she spent seven weeks at a nursing home for rehab so that she could walk again.

While she was recovering, she and her husband Bill received the first of several bills from the nursing home. That's when the couple learned Medicare wouldn't cover the $16,000 cost because Roberta didn't spend at least three consecutive days in the hospital as admitted patient, or inpatient, as Medicare requires. Instead, the four days she spent in the hospital was for "observation care."

"I thought it was surely a mistake," she said. "Nobody ever said I wasn't admitted."

Today, lawyers representing 14 seniors, including 7 from Connecticut, will go to U.S. District Court in Hartford to ask a judge to eliminate the observation care designation because it deprives Medicare beneficiaries of the full hospital coverage they're entitled to under Medicare, including coverage for follow-up nursing home care. The Centers for Medicare and Medicaid Services (CMS), which runs the Medicare program, pays for doctor visits, hospitalization, nursing home care, prescription drugs and other benefits for nearly 50 million older or disabled Americans, including about 586,000 in Connecticut.

More seniors are falling into the observation care coverage gap: the number of observation patients has skyrocketed 69 percent in the past five years, to 1.6 million nationally in 2011, according federal records. They're also staying in the hospital longer, even though Medicare advises hospitals to admit or discharge them within 24 to 48 hours. Observation visits exceeding 24 hours has nearly doubled to 744,748.

"Observation status fails to provide inpatient hospital coverage as promised under the law," said Judith Stein, executive director of the Center for Medicare Advocacy, a non-profit legal group in Willimantic, which filed the lawsuit.

Government lawyers will ask the judge to throw out the case because the seniors should have followed Medicare's appeals process before going to court if they believed they were unfairly denied benefits. Federal law requires them to go through all five stages of appeals, and if they are still not satisfied, then they can file a lawsuit, the lawyers argue in court filings.

"Indeed, to challenge coverage and payment determinations, the Medicare statute and regulations afford program beneficiaries extensive opportunities for review, including several levels of administrative review, and, potentially, judicial review," the government lawyers write.

And yet federal records and interviews with patients and advocates show that many observation patients who call Medicare about the billing problem hear something quite different - there is nothing that Medicare can do to help.

A Medicare spokeswoman declined to answer questions about observation care since the agency does not comment on pending litigation.

Stein says beneficiaries are often told there's nothing to appeal because Medicare paid for the benefits they were entitled to, observation care.

But it can be difficult for patients to appeal something they don't know about. Hospitals are not required to tell patients when they are in observation and that they may face extra costs, Medicare officials have said.

And all too often, observation services are hard to distinguish from inpatient care, said Toby Edelman, senior policy attorney at the advocacy center.

"How would you know you are not an inpatient when you are told you have to stay in the hospital?" Edelman asked. Observation patients are in a regular hospital bed, with a hospital wristband, receiving medication, tests, like other patients. Timing isn't a tip off since observation visits can last several days or even a week or more, she said.

And there's another hurdle beneficiaries face if they try to appeal. Federal law requires Medicare patients to spend three consecutive days as inpatients in order to be eligible for nursing home coverage. Medicare officials have told U.S. Rep. Joe Courtney, there's no way to get around that rule.

"We've had them in our office,'' said Courtney, who represents the 2nd Congressional District. "They are adamant that they don't have that discretion.'' In March, he reintroduced legislation to fix the problem by allowing Medicare to count observation days toward the three-day requirement for nursing home care.

The opportunity to appeal is rarely mentioned when seniors call Medicare to complain about observation status. According to records of 316 complaints -- the total Medicare said it received from beneficiaries or their representatives about observation status since 2008 -- a typical response was that Medicare "cannot intercede with hospital/physician regarding change of status."

But Lee Barrows, 77, who lives in Canton, found out she could appeal after contacting the Center for Medicare Advocacy in 2009, when her husband Lawrence was admitted to the hospital following a series of falls. On the fifth day, she was told he was being switched from inpatient to observation status for his entire stay. Hospitals are required to tell patients when they are being downgraded from inpatient to observation.

As a result, Medicare did not pay for his subsequent nursing home stay and the couple was hit with a $30,000 bill. Even with legal help from the advocacy center, Lee Barrows lost first, second and third appeal, and eventually paid the bill once a debt collection agency came after her. Her husband died in late 2009.

Then, on fourth try, after two and a half years in the system, "We got lucky," said Barrows' attorney Mary T. Berthelot, senior attorney at the Center. A judge ruled that the hospital should not have switched Lawrence to observation. He should have been an inpatient all along and Medicare had to pay his nursing home.

"So many people don't have the know-how or tenacity to appeal," said Barrows, who could not have managed without the advocacy center's help and is now one of the lawsuit plaintiffs.

Even though Medicare's lawyers argue that beneficiaries should appeal their observation status, officials would not disclose how many beneficiaries do so. But the information is buried in a document the agency submitted to Congress last month explaining its proposed budget request. Out of all the 3.2 million appeals received last year concerning all issues - from hospitals, doctors, nursing homes, and others who depend on Medicare payment -- seniors filed less than 10 percent.

Hospital representatives say CMS often gives them no choice but to keep an increasing number of Medicare patients for observation instead of admitting them.

First, Medicare continues to set more stringent criteria for inpatient admissions, said Sandra Iadarola, Waterbury Hospital's chief nursing officer and vice president for patient care services. To qualify, patients must have certain symptoms and require treatment that can only be provided in an acute care setting. As hospitals get better at applying the criteria, more patients that might have been admitted are classified as observation instead, she said.

But some patients may not qualify for admission - they may not have a clear diagnosis -- and yet are too sick to go home, said Iadarola. Observation status is used "for patients who fall in between," she said.

In addition, hospital officials have said Medicare's auditors also contribute to the rise in observation cases as the agency tries to control costs by cracking down fraudulent charges and unnecessary treatment. If auditors scour hospital records and find - sometimes years after the fact -- an inpatient who should been billed as an observation patient, the hospital has to refund Medicare's inpatient payment and receives no payment at all.

To minimize that risk and avoid auditors' scrutiny, hospitals may put more patients in observation, according to the American Hospital Association (AHA). In response, Medicare officials modified payment rules in March allowing hospitals to seek payment for observation patients within a year after the inpatient payment was denied. The association says that's not enough time and is suing Medicare to end the nonpayment policy.

Last week, Medicare officials proposed additional changes to the hospital payment system that would require, with some exceptions, patients who stay in the hospital two days or less to be classified as observation patients, and those who stay longer would have to be admitted. Lawyers at the Center as well as the AHA criticized the proposal because it would keep the three-inpatient-day requirement for nursing home coverage, among other reasons.

Requiring hospitals to tell patients when they are being kept for observation also may not solve the problem. Waterbury Hospital lets observation patients know they have not been admitted but they may not always understand what that means, said Iadarola.

"I think it's very confusing for them," she said. "Sometimes they don't necessarily grasp what the difference is until they get the bill," from the nursing home or hospital.

Two months ago, the Baxters reluctantly paid Roberta's nursing home bill of more than $16,000 "which made a large dent in our savings" she said. Her husband Bill, 80, still works part-time as a maintenance superintendent.

Lawyers at the Center tried to work with the Obama Administration to come up with a solution, but those discussions failed. And Courtney's legislation, first proposed in 2011, is still stuck in congressional gridlock.

"We had no recourse but to go to court," said Stein. "People are being tremendously harmed."

This story was reported under a partnership with the Connecticut Health I-Team (www.c-hit.org).